According to AM Best, the U.S. cyber insurance market’s strong growth continued in 2022, with direct premium increasing by 50% to $7.2 billion.
In its Market Segment Report titled, US Cyber: First Hard Market Cycle Brings a Return to Profitability, AM Best states that direct premiums written (DPW) have tripled in the past three years, outpacing that of the broader commercial lines industry by a “wide margin.”
Indeed, AM Best notes that calendar-year results improved dramatically in 2022 following two straight difficult years.
“Insurers benefited from continued rate increases, tighter underwriting and a decrease in ransomware attacks,” the rating agency explains.
Compared with 2021, the loss ratio fell 23% to 43% on standalone policies, and 18% to 48% on packaged policies.
Christopher Graham, senior industry analyst, industry research and analytics, AM Best, commented, “Underwriters have used every item in the proverbial toolbox to manage exposures.
“In addition to the rate increases, underwriters have cut limits, increased insureds’ own retention and improved risk selection.
“With the cyber universe expanding and becoming more complex with artificial intelligence creating new exposures and ransomware attacks returning to prominence in 2023, the demand for cyber coverage will only increase.”
AM Best’s report suggests that the cyber insurance market continues to shift away from packaged policies, with standalone ones now the preferred policy among larger insureds.
The rating agency says that more than 70% of cyber premium is written on standalone policies, with the 2022 total standalone DPW exceeding all 2021 cyber insurance premium.
AM Best views this trend as “welcome news” for the industry, as it may reduce disputes and litigation costs.
Meanwhile, in what AM Best describes as another “market shift”, surplus lines writers now account for a majority of cyber insurance premium.
The report notes, “From the time the NAIC started collecting data on cyber insurance in 2015 until the hard market of 2020, surplus lines companies held a relatively steady 25% share of the cyber market.
“However, since then, cyber premium written by surplus lines insurers increased by more than 500%, now representing nearly 60% of total cyber market premium.”
Elsewhere in the report, AM Best states that despite the decline in ransomware claims during 2022, first-party claims remain close to 75% of the nearly 27,000 reported claims as business e-mail compromise claims increased.
The number of third-party liability claims is also still significant, and these claims will have some tail in development, suggests the rating agency.
In addition, war risk exclusions vary by company, with some carriers sticking with traditional war exclusions and others accepting certain war exposures.
Fred Eslami, associate director, AM Best, said, “Systemic risk is an ongoing concern. Property catastrophes typically affect a limited geographic area, but a cyber catastrophe, as we saw with NotPetya, can go worldwide.
“As the definition of war becomes broader, so may the exclusion as well, which could lead to insureds with less coverage.
“Ultimately, the coverage provided to insureds may be decided by the risk appetite of the insurer, and to a certain extent, the coverage that reinsurers are willing to provide.”
